Costs and spending slide again

Posted: Saturday, December 13, 2008

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WASHINGTON - Consumers reduced their spending at retail stores again in November while the costs of goods before they reach store shelves also continued to drop, more bad signs in a recession that appears to be deepening.

Businesses also cut their inventories by the largest amount in five years, the government said Friday, a sign the recession will force further cuts in production.

Meanwhile, the Commerce Department reported Friday that retail sales dropped by 1.8 percent in November. The decline, which was slightly below the 1.9 percent dip that had been expected, was the fifth straight monthly drop, a record stretch of weakness.

The downturn was led by a 2.8 percent fall in auto sales, which had been expected since automakers had reported that November was their worst sales month in more than 26 years.

The Producer Price Index, which tracks costs of goods before they reach consumers, fell 2.2 percent last month as gasoline and other energy prices retreated, according to the Labor Department. That followed a record 2.8 percent plunge in wholesale prices in October, and November's price drop was larger than the 2 percent decline economists expected.

Falling prices might sound good for buyers, but a prolonged, widespread decline would do serious economic damage, dragging down incomes, clobbering home prices even more and shrinking corporate profits.

The Commerce Department also said businesses slashed the inventories they hold on shelves and back lots by 0.6 percent in October, three times the 0.2 percent decline economists expected. It was the biggest cut in inventories since August 2003.

Inventories are closely watched signals of business confidence. When companies are reducing their stockpiles because they are worried about future sales, it can further depress overall economic growth.

The reports come a day after the Labor Department said initial jobless claims rose to the highest level in 26 years.